Falling prices are wreaking havoc on oil industry

Dubai Falling oil prices are "wreaking havoc" on the industry and threatening future supply expansion projects, Saudi Arabia said yesterday as top producers find themselves helpless to stem the price slide.

The world's top oil producers and consumers meeting in London yesterday called for cooperation to increase stability in global crude prices, improve information on energy markets and help guarantee future supplies.

"Today's price levels are wreaking havoc on the industry and are threatening current and planned investments," Saudi Arabian Oil Minister Ali Al Nuaimi said. "A number of upstream and downstream projects have already been cancelled or delayed."

Weakening demand for oil amid a bleak outlook for the world's economy has driven down prices since the benchmark crude reached a peak of more than $147 (Dh540) per barrel in July.

With the US economy in recession, demand for oil has dropped in the world's biggest consumer nation.

Key ministers of the 13-member Organisation of Petroleum Exporting Countries (Opec) have warned in recent weeks that oil prices below $70 could threaten future supplies.

Saudi Arabia and Qatar believe the range of $70 per barrel to $75 to be a fair price for oil, while Iran wants the price to be $100.

In a bid to support the price of their precious export commodity, Opec members announced on Wednesday that they would cut their daily production by 2.2 million barrels.

That production cut, effective from January 1, may have stopped the prices from sliding even further, said Dalton Garis, associate professor of economics and petroleum market behaviour at the Petroleum Institute in Abu Dhabi.

The impact of the reduced supplies may be felt on the prices in mid-February, Garis told Gulf News.

"The issue right now is that the demand just keeps falling worldwide as the global economy is slowing down. Until this slowdown stops, we do not know how much oil prices will fall," he said.

Sticking to quotas

Kate Dourian, Middle East editor of energy information provider Platts, told Gulf News adherence to production quotas by Opec members will be the key to supporting oil prices.

"Their options are limited. There is no further cut on the cards for two to three months," she said.

Some in Opec are known to flout their collective decisions, but this time the Saudis, who will bear the bulk of the latest cut, "will not put [up] with non-adherence by others," Dourian added.

Oil prices are likely to stabilise around current levels in December before the cuts take effect, Opec president Chakib Khelil said yesterday.

At the London meeting, British Prime Minister Gordon Brown called for urgent action to reduce such huge swings in oil prices that he said had damaged the world economy.

"As with the global financial crisis, this global crisis in our energy markets cannot be solved by one nation or one continent alone," he said, according to a Reuters report.

Brown originally called the meeting in June when oil prices were heading towards an all-time peak of more than $147 a barrel. Prices have dropped by more than $110 since then as the credit crisis and recession have shrunk demand for fuel.

Lost revenues

A combination of declining oil prices, lower crude demand and production cuts will cost Opec another $151 billion in lost oil export revenue next year, the US Energy Information Administration said.

As a result the EIA revised down its monthly forecast for Opec's oil export revenue during 2009 by 25 per cent to $444 billion, which would be the lowest level since 2004.

- With inputs from Reuters